Hedge Funds Invest in Tax Whistleblowers

Driven by the potential profits in surging IRS rewards for turning in tax evaders, hedge funds, private-equity groups and other large investors are paying whistleblowers a portion of the money due them in exchange for a percentage of future payouts on rewards — effectively monetizes a whole new asset class in the process.

Three years ago, the IRS began offering bigger rewards — 15 percent to 30 percent of whatever money the government recovered. Today, those offices are receiving a torrent of big money claims, often accompanied with computer records and other documents that can determine guilt.

One IRS informant who reported that an overseas multinational corporation had underpaid its taxes by billions of dollars received $4 million last month from a private-equity firm. In exchange, the firm will receive a portion of the award the informant expects to collect eventually.

"For the whistleblowers, the amount of the potential award is so astronomical — tens of millions, hundreds of millions of dollars — that they have to ask themselves, ‘How many times over do you have to be rich?’” whistleblower attorney Eric Havian told The New York Times.

Potential whistleblowers should be aware of a couple of catches to this program, Helium reports: The tax evader must owe more than $2 million in taxes and the whistleblower must provide legitimate key information that leads to a judgment being levied.

Also, the IRS only pays out on the actual amount recovered, which may be far less than the amount of taxes evaded.

Driven by the potential profits in surging IRS rewards for turning in tax evaders, hedge funds, private-equity groups and other large investors are paying whistleblowers a portion of the money due them in exchange for a percentage of future payouts on rewards effectively...